A survey by Jelf Employee Benefits has revealed that many employers have yet to ensure they will be fully compliant with this new law. With implementation being just three months away urgent action needs to be taken.
As we know, the government has set a new higher minimum income level for employees 25 years old and over. This principle is generally understood, but it remains unclear as to how this new rate will interact with the use of Salary Sacrifice on employee benefits. Currently we cannot take an employee’s wage below the National Minimum Wage (NMW), so with little clarity employers could find themselves inadvertently breaching this new income level.
What was found by the survey is that approximately 4 in 10 employers were not aware of this as a potential issue, with around 19% stating they were aware of the possible implications and Salary Sacrifice but were yet to review. It further revealed that around 9% of those responding had undertaken a review and resolved any possible problems.
Those employers who operate Salary Sacrifice schemes are fully aware of the tax and national insurance savings that can be made by both them and their employees. It now seems that any salary sacrifice scheme in use will have the same impact on those being paid the new National Living Wage (NLW) as is currently on those being paid at NMW namely that any sacrifice will not be able to take them below the NLW rate.
“These findings are more than worrying: the income level and date of introduction were both established in the Summer Budget statement and we would therefore have expected employers to be taking action to ensure compliance with this new edict,” said Steve Herbert from Jelf Employee Benefits.
All Salary Sacrifice arrangements should be reviewed by employers, but especially those employers who have more than one arrangement in place.
“Some employees have a number of sacrifices in place for different benefits, and the cumulative impact of this may unexpectedly place employees close to the new legal minimum income of £7.20 per hour for the over 25’s. With time now of the essence, we would urge employers to act now or risk breaching the new rules,” Herbert added.
Support for the voluntary Living Wage as set by the Living Wage Foundation is at a good level was another finding of the survey. Approximately 16% of employers supporting the ideal of a much higher level of hourly rate both nationally and within the London area, currently these voluntary rates are set at £8.20 nationally and £9.40 for London.
“Many employers already pay in excess of the voluntary Living Wage, so we would encourage more to sign up to this benchmark. Paying the Living Wage significantly helps employees and their families, and this achievement will be better recognised by workers and potential recruits if formal certification is achieved. We hope that the increased media noise around the National Living Wage also results in many more employers applying for voluntary Living Wage accreditation,” Herbert concluded.
The survey also asked the question as to whether there had been a consideration of Salary Sacrifice(s) and the new NLW minimums. The statistics that came out of that questioning are:
44% had resolved any issue 89% did not use Salary Sacrifice Almost 40% were not aware of the issueComment
The warnings are there, if you haven’t already done so, ensure that your Salary Sacrifice schemes are and will be compliant from 2016/17. It is quite likely that some of your staff who have previously enjoyed the tax and national insurance savings will no longer be able to do so.
